China and India are, for now, the only billion-people economies. In one popular telling, China shifted hundreds of millions of workers from farms to urban areas. In that story that switch rate, paired with reasonable assumptions on relative productivities in relatively backwards agriculture and forward-looking manufacturing just about matches China’s overall growth rate, after factoring in other measureable progress.
A related not uncommon view further has it that India codes workman-like software, designs lower-end pharmaceuticals, answers queries about insurance claims over the telephone, and scans X-rays that Western doctors are too busy to do. These jobs might pay far less than done in the West but, in their part of the global marketplace, they almost surely pay better than stitching together textiles in Shanghai (上海) or assembling refrigerators in Shandong Peninsula (山东半岛).
So, which economy has had its growth driven more by changes in labour input? Where have more people moved out of poverty?
The Figures (using data kindly provided me by Dale Jorgensen and Khuong-minh Vu that they had used in their paper “Information Technology and the World Economy”, 2006) show decompositions of Chinese and Indian growth into contributions due to physical capital, labour, and productivity (TFP). Earlier on, between 1989 and 1995, China certainly drew more on labour than did India to power economic growth and, true to stereotype, drew more on labour hours (“mere sweat and effort”) than on labour quality, i.e., on skills and human capital. But even then the difference was small.
By 2000-2005 the most recent period for which we have data, China had come to rely more on physical capital, i.e., on machines. Its reliance on labour had fallen to 13%, almost exactly half that of India’s. That shift occurred, moreover, with little loss in productivity’s contribution. Through both periods and in both countries, productivity never contributed less than 40% of growth overall.
By 2000-2005, in fact, China’s profile of growth contribution from capital, labour, and productivity almost exactly matched that of the US. The difference, of course, is that China has been growing at 3 times the rate of the US.
The next Figure (per capita income on the horizontal axis; hundreds of millions in $1/day-poverty) shows how China’s much, much more impressive aggregate growth has lifted half a billion people out of extreme poverty in the last quarter-century; India, on the other hand, has only recently and, by comparison, imperceptibly started along the same path. But with a long way to go still. The data are for 1984-2004; I had used them in a previous blog posting.
My own small contribution on global inequality the last couple months was extremely practical. I did what I could in charitable fundraising. The video shows my friend Maria Gratsova holding the board for an airbreak. I performed a jump spinning hook kick. This particular event was the LSE Development Society auction on 05 February 2008, and I was up on the auction block. Fortunately, someone did buy me – for much more than I’m worth. But the money went to a good cause and the deal was that we had a paid-for dinner together afterwards.
(Yes, yes, I know, boards don’t hit back but an airbreak means the board swings loose, and so is harder to break. And of course that they don’t hit back doesn’t mean they break everytime. In this next video [from September 2007] I attempted two boards on one jump and only broke one.)
Thanks to the kindness of friends, Maria and I held a repeat performance at LSE’s Malaysia-Singapore Students Night, 23 February 2008, in the Old Theatre. Money changed hands there too, and for just as worthy a cause. (This still is from LiEe Ng’s camera; thanks LiEe!)